The Tax Revolt of 2010

I am fairly confident that a Democrat will win the White House and Democratic majorities in the Senate and the House will be maintained and most likely expanded in both. However as Stirling Newberry noted a few days ago, the Democratic Party is running as competent technocrats without seeking to diametrically upset the dominant paradigm:

all three top Democrats are proposing health plans which are to the right of what Mitt Romney signed into law as the Republican governor of Massachusetts, and to the right of what Richard Nixon proposed almost 40 years ago as a Republican President, then it is clear that change is what you have in your pocket, and it isn't worth much.

As a short term strategy, this probably will work as a 'Not Republican' is a decent qualification for public office, but as long as we stay within a mindset of zero-sum gamesmanship, reactionary and exclusionary politics is a much stronger hand to play as it is easier to assemble a narrow coalition to protect fixed slices of the pie. And as an intermediate term strategy this is a good way to reap a tax revolt within the next couple of years as the politics of pain will be too strong and the pallative of short term relief will be tempting; thus the symptoms of the underlying problems of short term pervese incentives, decreasing cutting edge productivity, loose credit and perpetual debt will be addresse without actually changing the actual structure of these trends.

I wrote in November that the local politics of housing and taxes will get increasingly nasty as there is a significant concentration of pain.

if you live in Pittsburgh like I do, the crushed speculator demographic is minuscule and politically irrelevant. However if you live on the East Coast, in California or on the Florida coasts, this demographic is going to be fairly large, and fairly loud because they are in significant pain

This concentrated dynamic of pain will produce people seeking anything that can shift some of their costs to someone else even if the long term trade-offs are remarkably poor as long as the short term breathing space is created in which a bet for improvement can be made:

People who are stuck with mortgages and houses that they can not sell, refinance or service will be looking for help. They will be looking for refinancing deals, special breaks, holds on foreclosures, delays on credit reporting, and most significantly at the local level, assistance on minimizing the quasi-fixed costs.... and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates......

Mish at Global Economic Analysis has flagged an interesting Yahoo article that is describing the start of the tax revolts as highly likely voters are seeking relief on their property taxes.

Falling home values and rising property taxes in many parts of the country are generating the loudest complaints about property levies since the 1970s, forcing state and local officials to address the outcry even as the housing-market slump eats into many sources of their revenue.

Indiana residents held public protests this summer against a surge in property taxes and acted on their frustration by ousting the mayor of Indianapolis. Florida voters will decide next month whether to adopt massive property-tax cuts, in a debate that has pitted part-time residents against full-time Floridians....

In Florida, where the falling housing market has gouged the state's economy, residents are debating massive property-tax cuts that will be voted on Jan. 29. Implementing the proposed changes would require amending the state's constitution. The plan, which strongly favors longtime homeowners over new buyers and part-time residents, has sparked opposition......

Across the U.S., concerns about property taxes have reached levels not seen since the passage of California's Proposition 13 in 1978. That landmark law capped property taxes at 1% of assessed value and said the base assessment on a home couldn't increase more than 2% a year until it is sold. A companion initiative, Proposition 8, allows homeowners to get assessments temporarily reduced during a weak housing market, until home prices recover.

The long established and previously protected are core voters and it is their power and interests that politicians cater too. Ian Welsh on the French elections noted that Sarzoky was elected by the death bet crowd --- the costs of their choices would be paid by others after they die:

the old folks telling the young folks that the protections the oldsters enjoyed their entire lives; the easy jobs they enjoyed their entire lives; are being taken away. It's real easy to vote for tough medicine for someone else, and that's what just happened in France.

Homes are the primary asset for most people, and right now homes are under systemic threat as a symptom of a greater problem. People want to make that pain go away without the costs of fixing the greater problems, and engaging in a local government financial death spiral and micro-local education arbitage seems like a decent short term fix, so we'll see a full scale tax revolt in 2010 or no later than 2012 as the last round of housing bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg....